Buy now, pay later services are everywhere. Whether you’re shopping for groceries, sneakers, or even fast food, there’s a good chance you’ll be offered a way to split your purchase into smaller payments. It feels easy and convenient.
But under the surface, these plans can result in serious financial trouble.
One of the biggest players in the industry, a company called Klarna, lost $136 million in the first quarter of 2025 alone because customers didn’t pay back what they owed. That’s according to their own quarterly report.
George Kamel, a personal finance personality and Ramsey Network host, said in a recent video, “People ain’t paying their debts.”
Even with these massive losses, Klarna still turned a profit and reported 15% year-over-year revenue growth.
How? The company cut its workforce by 40% and shifted heavily to AI. In its Q1 press release, Klarna claimed it had streamlined its workforce by 40% while raising the share of tech employees.
Kamel didn’t buy the spin. “What a nice way to say you just laid off half your staff,” he said.
Klarna’s revenue for the quarter surpassed $700 million, driven largely by 33% growth in the U.S., as highlighted in a video presentation by an AI-generated avatar of CEO Sebastian Siemiatkowski.
In a preliminary IPO filing, Klarna acknowledged that economic downturns or market disruptions could make it harder to collect on loans.
The company postponed plans to go public after President Donald Trump’s tariffs sent the stock market into free-fall in early April.
A company spokesperson told Fortune the increase in credit losses happened because Klarna made more loans, not because customer quality or economic conditions deteriorated.
“Delinquency trends are improving, especially in the U.S.,” the company said.
Designed To Make You Overspend
According to George Kamel, these companies follow a four-step business model that ultimately works against consumers:
- Step 1: Partner with big-name merchants.
You’ll see buy now, pay later options at checkout on sites like Walmart, Target, and DoorDash. The BNPL company gets a cut of each transaction.
- Step 2: Target financially vulnerable customers.
Many BNPL brands advertise themselves as helpful and friendly, using slogans like “get financial breathing room” or “pay at your own pace.”
Kamel called it out directly: “All this marketing is aimed at those who are truly struggling financially.”
- Step 3: Trick people into spending more.
Studies show that people spend significantly more when using installment plans.
One report showed Klarna users increased their spending by 45% in certain industries.
- Step 4: Profit from late fees and sky-high interest.
If you miss a payment, you could be hit with fees or interest rates up to 34%.
For comparison, the average credit card interest rate is just over 21%. And about half of BNPL users end up missing at least one payment.
Better Habits To Avoid The Trap
Kamel offered three simple habits to help people avoid falling into this cycle:
- Use the 24-hour rule. Wait at least a day before making a big purchase.
- Budget in advance. Only buy things you’ve already planned for.
- Just say no. Skip the BNPL option, even if it seems harmless.
“Buy now, pay later is not convenient,” Kamel said. “It’s nothing more than a giant financial trap.”
Instead of relying on installment plans, he encourages people to save using high-yield accounts and stick to realistic spending boundaries.
“Don’t buy anything that you have not budgeted for,” he said.
The rise of BNPL isn’t slowing down.
But understanding how these companies operate might help more people stay out of financial trouble and keep their money where it belongs: in their own hands.